The Lowdown on Markets to 31st March 2017

April 3rd, 2017

The Lowdown on Markets to 31st March 2017 World Markets at a Glance In this week’s issue Global stock markets record yet another strong quarter helped by the Trump trade. Equally the US President fails to gain sufficient support for his healthcare reforms. Over the quarter the emerging markets outperform those of the developed. […]

The Lowdown on Markets to 31st March 2017

World Markets at a Glance

In this week’s issue

Global stock markets record yet another strong quarter helped by the Trump trade.

Equally the US President fails to gain sufficient support for his healthcare reforms.

Over the quarter the emerging markets outperform those of the developed.

Energy stocks suffer on both sides of the Atlantic as the price of crude oil falls.

In the US the Federal Reserve Bank begins tightening with further rate hikes expected.

Will global stock markets in the second quarter be influenced by political uncertainties?

“Article 50 is invoked as the markets end the quarter on a cautious note”

Clearly, this has been a rewarding first quarter for investors and especially for those that were prepared to embrace risk given the returns that have been recorded in many of the global equity markets. Understandably, there were some unusual forces at work such as the continuation of the Trump trade and the uncertainties over populist voters in the forthcoming European elections.

In the UK the Prime Minister, Theresa May, invoked Article 50 shortly before 12.30.pm on the 29th March 2017 which means that Britain should officially leave the EU no later than 29th April 2019, but of course, the terms of the exit will now need to be negotiated between the remaining members of the European Union and Britain.

Understandably, the mood on Thursday, when Sir Tim Barrow handed over Britain’s official letter to Donald Tusk, the European Council president, was obviously a somber moment given that it began the proceedings for the UK to end its 44-year relationship with Europe. Mr Tusk when receiving the official letter said that “we already miss you. Thank you and goodbye”. Which I think summed up the moment very well whether you are pro-Europe, or indeed, a Eurosceptic. However, the deed is now done, after many months of debate, and the scene is now set for the negotiations to begin.

“We already miss you. Thank you and goodbye”

Predictability, there has been much spoken about the damage that will be done by Britain leaving the European Union, but in reality, there is actually no guarantee that the EU will survive over the next decade, certainly in is current set-up, given that there are so many weaker and frail member states that are vulnerable to exclusion if a further financial crisis were to happen.

Unquestionably, the prime minister does face a difficult time ahead as she tries to reach a deal that preserves as much as we can in respect to our economic, political and strategic ties with the EU, but equally, it must be in their best interests to try and thrash out a free-trade agreement that benefits both parties given our close proximity and historical ties. Therefore, any negotiations must take into consideration both sides’ future needs ensuring that the UK and Europe flourishes upon the world’s economic and financial stage.

And in respect to the UK, Brexit is not all doom and gloom. Certainly the collapse in sterling is not great news for UK imports, but in respect to foreign tourism, M&A activity, and residential property prices it’s been fantastic. Arguably, there are some that might judge us differently, knowing that in a couple years we will be outside of the EU, but London will always remain a “trophy city” for overseas high net worth investors, given that they like to visit this country, purchase our admired properties, invest in our stock market, and run or acquire businesses that are based in the UK.

And therefore from a domestic perspective it is now very important that the British electorate gets behind the prime minister, and government officials, to make sure that this country prospers as a non-EU member, not only for this generation, but for future generations to come.

“It is now very important that the British electorate gets behind the prime minister”

Arguably, over the past decade the world has suffered from two major financial earthquakes, firstly, the global financial crisis of 2007/2008, and then secondly, the eurozone crisis of 2009, equally, this cost the financial system around the globe trillions of dollars, and it’s only been very recently that we have seen some green shoots of a global economic recovery appear.

Unquestionably, financial markets have participated in this recovery, rewarding global investors handsomely since March 2009. Certainly the implementation of central bank policies over recent years has led to some economic stability, and of course, in recent months the markets have been further stimulated by the results from the European referendum, and the US Presidential election, remembering that both Brexit and a Trump victory were supposed to be bad news for markets.

But we need to move on, and see further inspirational government and central bank policies that will deliver a further period of steadfast, and hopefully risk free global economic growth, creating additional jobs and prosperity. Admittedly, we are entering a new age of technology with Robotics, automation and driverless cars that might threaten some businesses and jobs over the coming years.

However, this will revolutionize many industries such as energy, healthcare, manufacturing, retail, agriculture, and consumer production, allowing for businesses to become much more responsive to the changing world and environment that we find ourselves, and of course, improve profitability for company’s and its shareholders.

“Moving on to the end of this quarter, virtually all global equity markets delivered satisfactory returns”

Finally moving on to the end of this quarter, virtually all global equity markets delivered satisfactory returns, with the emerging markets outperforming those of the developed world. Obviously, most of the markets were positively affected by the “Trump trade” which did regularly catch some investor’s wrong footed, never-the-less, it was a “risk taking money making” twelve week period.

And in respect to the global equity markets, Wall Street’s main indices did reach a succession of record highs during the quarter, whilst European markets regained some of their magnetism with investors leading to stocks hitting a 15-month peak. However, it was Asia and the emerging markets that put in the strongest performances seeing their benchmarks rise by more than 13.0 and 11.0 per cent respectively.

And on a global perspective, the FTSE All-World Index recorded a gain of just over 6.0 per cent for the twelve week period. Equally, in terms of global sectors technology, consumer goods, healthcare and basic materials were up between 7.0 and 11.0 per cent whilst the oil and gas sector delivered a negative return over the same period.

“The FTSE All-World Index recorded a gain of just over 6.0 per cent for the twelve week period”

Arguably, we are now entering the second quarter of the year with the political backdrop in the US and Europe looking less predictable. Firstly, the US President, Donald Trump, will need to deliver on his pre-election promises, after his recent disappointment on Obamacare, and secondly, investors will be keeping a watchful eye on the French election, the populist vote, and whether Marine Le Pen can pull off a shock result, but remembering that so far the populist vote has been good for markets.

Likewise, global growth is expected to come in at 2.9 per cent in 2017, whilst inflation could continue to rise over the coming months. In respect to central bank policy, the US Federal Reserve Bank are likely to raise rates perhaps two or possibly three more times throughout the year , whilst the Bank of England and the European Central Bank are likely to remain on hold for the remainder of the year.

Peter Lowman Chief Investment Officer

Peter Lowman Chief Investment Officer Peter Lowman has been in investment management for over forty years and prior to becoming Chief Investment Officer for Investment Quorum, he worked within a larger asset managers, primarily as an Investment Director with Cazenove’s. He is responsible for the overall investment strategy for Investment Quorum clients and sits on the Investment Quorum Committee.

This article does not constitute specific advice and investors should bear in mind capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority .

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